Strat for's take on the Venezuelan Parliamentary Election

Summary Venezuelan President Hugo Chavez has until mid-December to push through a series of laws designed to strengthen the executive’s power after his ruling Partido Socialista Unido party lost its parliamentary supermajority in September. These laws also seek to endow the thousands of communal councils loyal to the president with greater funding at the expense of state governments, undercutting his opposition. Passage of these laws will give Chavez better control of foreign assets in Venezuela and put him in a better position to stifle opposition supporters.

Analysis Venezuelan President Hugo Chavez may have suffered a slight setback Sept. 26 when his ruling Partido Socialista Unido de Venezuela (PSUV) lost its two-thirds supermajority in the Venezuelan parliament, but he has options to try to maintain his political authority. Chavez and his allies have until Dec. 15 to push through a series of legislation before members of the opposition claim their seats in January 2011, when the next National Assembly session begins. Even then, the PSUV will still have 98 seats (compared to its previous 137 seats) in the 165-seat National Assembly with which to influence the legislative agenda. The various pieces of legislation currently making their way through parliament share the common purpose of augmenting the power of executive authority and the thousands of communal councils loyal to the president. If they make it through the National Assembly by year’s end, Chavez will be able more effectively to control foreign assets in the country and to sideline problematic legislators, mayors and governors who have sided with the opposition. A summary of the most critical legislation currently under review follows below.

Enabling Law for Special Presidential Powers

Summary: The details of this legislation have not been released, but it would likely contain provisions for the president to enact legislation by executive decree. Given the sensitivity of the legislation and the controversy that it would produce, the government appears to be keeping this proposal under wraps for now.

Status: This law was proposed by PSUV legislators Mario Isea and Iris Varela on Sept. 28, but has not been presented to the national assembly.

Oil Service Company Regulation Law Summary: This law would enable the government to bypass parliament when it wishes to nationalize the assets of oil and natural gas firms. According to the draft text, “… oil and gas operation assets can be subjected to measures of protection, insurance, requisition and expropriation when the continuity of work is affected …” The law would also allow the government to set tariffs for companies, prohibit the relocation of assets outside the country without state permission and prevent recourse to international arbitration in disputes. This is a reminder to firms like Halliburton, Schlumberger and Baker Hughes that watched nervously as the Venezuelan government nationalized 11 oil drilling rigs belonging to U.S. firm Helmerich & Payne in late June, which had halted production in protest of state-run Petroleos de Venezuela (PDVSA)’s failure to pay the company for its services. The legislative proposal also comes at a time when Venezuela is earnestly seeking foreign investors to develop its extra-heavy oil reserves in the Orinoco fields. Foreign firms are growing skittish over the regime’s intentions toward their assets, however. Even so, Venezuela’s deepening relationship with China to develop Orinoco in exchange for much-needed investment in state-owned sectors may be giving Caracas the extra boost of confidence to see this type of legislation through.

Status: A draft of the law has been completed and is supposed to be presented to parliament by the end of the year.

Communal Economic System Law Summary: This law is part of a package of “Popular Power” legislation designed to empower thousands of local communes comprised of mostly PSUV sympathizers. By devolving power to the local level and increasing their funding at the expense of state governors and municipal officials, Chavez aims to undercut his opposition and widen the number of Venezuelans dependent on him for their livelihood. This law on the economic system of the communes details how the executive authority will be able to directly transfer funds to the communes for local projects. It also attempts to stem rampant money laundering rackets that have debilitated state firms <http://www.stratfor.com/analysis/20100803_special_report_venezuelas_unsustainable_economic_paradigm> by promoting non-monetary trading through an exchange, which allows for the bartering of goods. However, such a system is unlikely to resolve Venezuela’s corruption <http://www.stratfor.com/analysis/20100927_venezuelas_elections_and_devolving_state_power> ailments.

Status: This law is currently being debated in the National Assembly. PSUV legislator Dario Vivas has said that Popular Power laws, including the Communal Economic System Law, will be given priority during this legislative period.

Banking Activity Regulation Law Summary: As part of the Organic National Financial System Law, this law is intended to give the state more authority in directing bank financing toward economic projects prioritized by the state, to include state-owned firms and communal council activities. State authority within the banking system has also greatly facilitated corruption among state-owned firms in the food, electricity, metals and energy sectors.

Status: This law has been discussed in the National Assembly Finances Commission and has been listed as a priority for approval, but has not yet been presented to the National Assembly.

Emergency Urban Land Regularization Law Summary: This law is intended to allow the government to reclaim land in urban spaces for residence construction and to nationalize private housing projects that have been halted. Under deteriorating economic conditions, a number of housing projects have stalled and have thus threatened to undermine Chavez’s popularity among Venezuela’s poor. It is probably not a coincidence that Chavez is also in the process of making deals with Iran, Russia and Belarus for large-scale housing projects. Such projects not only allow the president to boost his image among his constituency, they can be used for money laundering.